Balance of Payments: Useful notes on Balance of Payments

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Balance of Payments: Useful notes on Balance of Payments!

Every government keeps a record of the transactions that take place between the country and the rest of the world during a given period of time. This record is termed as the country’s Balance of Payments (BOP).

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Balance of Payment is an accounting statement that provides a systematic record of all the economic transactions, between Residents of a country and the rest of the world, in a given period of time. BOP is a summary statement in which all the Economic Transactions’ between ‘Residents’ and rest of the world are recorded during a particular period of time (usually, one year).

Who are included in Residents?

Residents of a country include individuals, firms and government agencies. However, residents do not include Diplomatic staff, foreign military personnel, tourists, migratory workers and branches of foreign companies, even though they work and operate within the domestic territory of the country.

Economic Transactions:

Economic transactions refer to those transactions which involve transfer of the title or ownership of goods, services, money and assets.

They are broadly categorized as under:

1. Visible Items:

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These include all types of physical goods which are exported and imported. These are called ‘visible items’ as they are made of some matter or material and can be seen, touched and measured. The movement of such items is open and can be verified by the custom officials.

2. Invisible Items:

Invisible items of trade refer to all types of services like shipping, banking, insurance etc., which are given and received. These are called invisible items as they cannot be seen, felt, touched or measured.

3. Unilateral Transfers:

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Unilateral transfers include gifts, personal remittances and other ‘one-way transactions’. Since these transactions do not involve any claim for repayment, they are also known as unrequited transfers.